Guide to Financial Training for Food Businesses
Know Your Financial Statements
Understanding financial statements, capital budgeting, and long-term finance needs can be complex even for the most savvy business owner, but financial competency is also immensely powerful.
Once you understand your business from this perspective, every decision that you make is aimed at improving your overall financial position. In simpler terms, this understanding helps you make decisions that will increase profits and better your cash flow. It makes sense then, that the leadership team making decisions that impact the business on a daily basis should also understand the business from the financial perspective.
Get Your Team Involved
This is not to say that you need to send all of your managers to get MBAs, or that they need to come to meetings with your accountant, or even that you have to share your financial statements with them. But, they should understand what the basic financial statements are and how their daily operating decisions impact those statements. I recommend starting with a series of training with the following structure (and then regular, on-going training to sharpen skills):
- Introduce the financial statements: P&L, Balance Sheet, & Cash Flows
- The majority of training should focus on the P&L, the most operationally focused of the statements. Walk through each of the following:
- Top-line: why revenue matters & how it determines the amount of money available to run the business
- Variable costs & gross margin: what are variable costs, are they all truly variable or are some pre-determined, how can we improve gross margin
- Fixed costs: these costs are harder to change and need to be paid regardless of the amount of sales that are generated
- Profits & profitability: what does it mean and where do they go? Two places: either paid out as bonuses or retained within the company for investment or to pay down debt (this moves us to the balance sheet)
- Retained earnings from P&L
- How capital investments effect the Balance Sheet and where the money comes from to pay for them
- How debt effects the overall “health” of our financial position- it helps fuel growth but too much is a bad thing
- Why do cash flows matter?
- How is the movement of cash different than revenue and expenses on the income statement? Managers need to understand the timing of different cash needs.